Hungary bears down on national banks – steps up FX capital adequacy requirements


Hungarian authorities continue to focus on capital adequacy as FX operations within banks become subject to incremental increases, set to reach 100% in 2017

Hungary, despite being a nation which does not have the highly developed financial markets structure of its immediate neighbors such as Germany and even Poland, has taken steps toward raising the minimum capital adequacy requirement  that banks are required to retain for their FX operations.

The National Bank of Hungary made a corporate statement yesterday that it intends to raise the ratio gradually, from its existing 65%, to 75% in July, and then by 5 percentage points on an incremental basis until it reaches 100% in January 2017.

Whilst Hungary’s economy is not as buoyant as some of its contemporaries in the region, the nation has retained its sovereign currency, the Forint, despite European pressure to join the single monetary unit.

The reviewed foreign currency financing adequacy ratio and its gradually rising level will ensure that the bank sector’s foreign currency asset-liability maturity mismatch will improve, liquidity system risks will fall and the resilience of the financial system will further improve. In addition to strengthening the stability of the financial system, the measure will also reduce the level of foreign currency reserves the central bank is obliged to keep and thereby the related costs as well,” the statement said.

Despite the relatively small FX trading community in Hungary, the national authorities have demonstrated their mettle previously by suspending the license of iForex three years ago, at a time when retail FX was largely exempt from licensing requirements and regulatory oversight in the vast majority of European nations.

At the time, the Hungarian FSA had majored on lack of capital adequacy as being the main reason for its enforcement action, which culminated in a $100,000 fine and six months suspension from doing business in the region.

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Hungary bears down on national banks - steps up FX capital adequacy requirements

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